* Nikkei closes down 0.7 pct on the day, sheds 2.1 percent this week
* Banks hit after govt may ask them to ease Tepco loan burden
* Utilities down as govt asks them to contribute to Tepco scheme
* Autos, firms with FY2011/12 f'casts post strong gains
* Volume hits 6-week high
TOKYO, May 13 Tokyo stocks fell to a two-week low in heavy volume on Friday as bank shares tumbled after the government's top spokesman sparked concerns that banks are likely to be asked to ease troubled Tokyo Electric Power Co's loan burden.
Shares in utilities also took a hit, after Japan's government approved a plan to help Tepco compensate victims of the crisis at its tsunami-crippled nuclear plant and said other utilities will be asked to pay annual premiums to help fund compensation.
"The government is violating private firms' profits. It has violated the profits of utilities and now it's trying to lower the burden for the taxpayer by encroaching on banks' profits," said Kiyoshi Noda, chief fund manager at MU Investments.
"Due to this the market is facing a new political risk. The government does not respect private profits and investors are reacting badly to the announcement. The impact will be especially big if the banks are asked to share the burden as the sums we're talking about are high."
The benchmark Nikkei average closed down 0.7 percent at 9,648.77, while the broader Topix fell 1.1 percent to 839.94.
The Nikkei shed as much as 1.7 percent to a session low of 9,552.93 after the government announcement , but steadily recovered after that.
As investors offloaded their positions in bank and utility stocks trading volume spiked to the highest since March 30, with 2.83 billion shares changing hands on the Tokyo Stock Exchange's main board, exceeding an average of about 2.0 billion shares this week.
The market was also jittery due to recent volatility in commodities, resurfacing worries about Greece's debt problems and concerns over further tightening in emerging markets after China lifted bank reserve requirement ratios by 50 basis points on Thursday.
"The comments came at a time when the market was worried about the cooling of the Chinese economy, a slightly stronger yen and volatile commodities, so the reaction may have been a bit over the top," said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.
Chief Cabinet Secretary Yukio Edano said he expected financial institutions to be asked to cooperate with helping Tepco fund compensation.
"As for loans made before March 11, this is still a matter between private companies and I want to watch what I say. But, like you said, I don't think it (banks not forgiving any loans made before March 11) would win the people's understanding," he told a news conference.
Other investors added that the market was also sensitive before the release of earnings for both Sumitomo Mitsui Banking Corp and Mizuho Financial Group Inc earnings after the market close on Friday.
Shares of Tepco's main creditor bank, Sumitomo Mitsui, fell 3.8 percent to 2,452 yen and Japan's biggest bank by assets, Mitsubishi UFJ Financial Group shed 2.8 percent to 383 yen. The two banks were the most actively traded stocks by turnover on the main board.
Among power companies, Tohoku Electric lost 6.9 percent to 1,120 yen and Kansai Electric shed 3.1 percent to 1,571 yen.
NISSAN JUMPS, RESOURCE STOCKS FALL
But Nissan Motor gained 3.5 percent to 823 yen after it laid out plans for a recovery to pre-quake level production.
Nissan reported on Thursday a stronger than expected 7.2 percent rise in quarterly operating profit despite Japan's earthquake and predicted its global output would return to normal by October. [ID:nL3E7GC14U]
"The general message in the market is that disruption from the earthquake is gradually stabilising," said Stefan Worrall, director of equity cash sales at Credit Suisse, but added that flows were not very strong and that they were short-term and opportunity-related.
Nikon surged 6.5 percent to 1,768 yen after it forecast its net profit to jump 54 percent to 42 billion yen in the current business year to March 2012 on strong digital camera demand and further expansion into fast-growing markets.
Commodity stocks extended their losses, with Inpex shedding 3.9 percent to 541,000 yen, JX Holdings slipping 1.7 percent to 528 yen and Sumitomo Metal Mining dropping 3.1 percent to 1,310 yen, hit by ongoing jitters about volatility in commodity prices.
Decliners outpaced advancing issues by 1,354 shares versus 232 shares. (Reporting by Antoni Slodkowski; Editing by Edwina Gibbs and Joseph Radford)